Execs defend merger, safety of shale gas production

Published 6:30 am, Wednesday, January 20, 2010

WASHINGTON—The heads of Exxon Mobil Corp. and XTO Energy Inc., today sought to assure skeptical lawmakers that the techniques they use to produce natural gas from shale rock are safe.

“We can now find and produce unconventional natural gas supplies miles below the surface in a safe, efficient and environmentally responsible manner,” said Rex Tillerson, CEO of Irving-based Exxon Mobil Corp.

Bob Simpson, the founder of Fort Worth-based oil and gas producer XTO Energy, gave lawmakers the same assessment.

Their comments came before a House Energy and Commerce subcommittee hearing to vet the planned merger of Exxon Mobil—the world's largest publicly traded oil company—with XTO, a pioneer in the use of a technique called hydraulic fracturing to produce natural gas from unconventional sources.

Under the terms of the all-stock deal—valued at upwards of $40 billion—Tillerson said Exxon Mobil can pull out of the merger if federal regulators or lawmakers prohibit hydraulic fracturing or make it “no longer commercial.”

In hydraulic fracturing, commonly called “fracking,” energy producers inject fluids deep underground under high pressure to break up shale rock and release gas locked within it. The technique, now regulated at the state level, has been criticized by some environmentalists who worry it could introduce harmful chemicals into water supplies.

Several bills aim to shed more light on the process, including a measure by Rep. Diana DeGette, D-Colo., that would force companies to disclose the chemicals used in hydraulic fracturing fluids.

DeGette said she is confident Congress can support fracturing while ensuring that its use is environmentally sound.

Rep. Joe Barton, R-Ennis, said he has had discussions with members who would like to outlaw the practice or give the Environmental Protection Agency more authority over it.

Tillerson said new federal regulations would add unnecessary costs, because state laws are better adapted to the needs of individual states and their geology.

“I've never seen a regulation that didn't add a layer of cost,” Tillerson said, adding that the potential price tag of complying with new regulations on fracking could discourage production of marginal wells.

A complete ban, which has not been proposed formally in Congress, would halt production of natural gas from shale rock, Tillerson said. “Without hydraulic fracturing, the gas that is locked in the shale rock stays locked,” he said. “We've drilled through these shales for years (without producing gas). If you remove hydraulic fracturing as one of the key enabling technologies, this resource could no longer be recovered.”

Tillerson said he backs more disclosure of the contents of the chemical cocktails used in fracking--though neither he nor Simpson back DeGette's proposal that would include regulation of fracking by the Environmental Protection Agency .

Simpson emphasized that hydraulic fracturing has been used for more than 60 years—though it has just recently been combined with horizontal drilling techniques to tap shale discoveries in Texas, Louisiana and Arkansas and stretching from New York to Tennessee.

Some energy experts believe that 100-year supply of natural gas can be recovered in the U.S., with the combination of new production techniques and the emerging shale plays.

Rep. Gene Green, D-Houston, said he wants “to make sure we don't throw so many regulatory roadblocks that we can't have the shale production, not only in Texas . . . but also in the Northeast and everywhere else.”

The planned Exxon-XTO merger is viewed as a sign that major energy companies increasingly view unconventional natural gas as commercially viable. Exxon Mobil's move to join a company with expertise in unconventional gas production—and tap into its vast reserves, potentially 45 trillion cubic feet of gas—also could spur similar moves from other integrated energy companies.

“The Exxon Mobil-XTO deal may prompt its peers to move forward similarly, consolidate an already tight oil and gas market and create additional concerns for the regulatory bodies that oversee the oil and gas supply,” said Rep. Doris Matsui, D-Calif. “Studies have shown that fewer participants in energy can lead to both lower and higher prices for consumers.”

Tillerson insisted that the merger would leave plenty of room for other energy companies interested in unconventional natural gas production, and that Exxon Mobil's participation “is unlikely to change the competitive balance.”